Owning an automobile is a matter of pride and necessity in India. Many opt for it even if their finances fall short through Car Loans. Lenders also allow repayment in equated monthly instalments for convenience. But the one mistake most buyers make is reducing EMIs by stretching the tenure.

It seems like the best option considering the reduced monthly burden. But you end up making more in the process. The Car Loan interest rates get influenced by the tenure you choose. The shorter the duration, the lower the interest rate and vice versa. Hence, your decision has a direct influence on the loan cost. Having a shorter tenure also has other positive impact on the interest:

Helps with resale: Banks treat the vehicle you purchase as collateral. Hence, it remains under their surety until they recover the loan amount. You cannot sell the same until the end of the tenure. When you have a tight loan duration, you get to pay it off quickly. This retains its depreciating value, which reduces with each passing year. Moreover, with a shorter loan term, you reduce the lenders' risk. As a result, they reduce the Car Loan interest rate.

Reduced cost: As discussed, a vehicle is a depreciating commodity. Its value gets affected by its age. Hence, keeping the tenure short helps sell it off quickly after settling the loan. Lenders also need not worry about their resale value and wear and tear to recover the loan amount. As a result, they let you get the lowest Car Loan interest rate possible for reducing their risk.

Disciplined budget: When you opt for a longer loan period, you get reduced EMIs. This may seem like you are getting a cheaper deal. Hence, it is natural to go over budget with your four-wheeler purchase. As a result, the borrowable amount increases. To avoid this, always use a Car Loan EMI calculator to get a precise estimate. It shows you exactly how much Car Loan rate of interest you get against the tenure. This helps you make an informed decision.

Lower interest outgo: The Vehicle Loan interest rate depends on the outstanding amount left on loan. With a shorter duration, you get to pay off the dues faster and go debt-free earlier. Moreover, a brief period does not incur any significant financial changes. This reduces the banks' concern of recovering the loan amount on time. Hence, they provide relief on the interest outgo.

To conclude, a shorter tenure gets you better interest and lowers the overall loan burden. It also helps you get the best value for your car.

https://www.bankofbaroda.in/car-loan-emi-calculator.htm